WINSTON-SALEM, N.C. — Linwood Furniture is facing a Sept. 5 hearing in U.S. Bankruptcy Court here on whether its case will be converted to a Chapter 7 proceeding, which usually means liquidation and sale of a company's assets.
The bankruptcy court administrator for the case goods manufacturer filed a motion seeking the change.
Linwood filed for Chapter 11 bankruptcy protection in March. It sought approval to sell its assets at auction on Aug. 6 with a minimum bid of about $2.56 million, but withdrew the motion to sell after receiving no bids by the deadline.
Linwood President and CEO Jeff Schwall said this week that the company has ceased most production and has placed about 75 employees on furlough pending the results of the Sept. 5 hearing. He said the company is operating on a limited basis with a small staff that is handling tasks such as custom finishing and shipping of in-stock items, as well as collecting receivables and paying bills.
In court documents, the bankruptcy court administrator said it is seeking to convert the case to a Chapter 7 liquidation because of continuing losses to the estate, failure to file monthly reports and failure to pay second quarter Chapter 11 fees. The administrator noted that it did not believe Linwood is in a position to continue operations.
Court documents filed last month said the company could run out of cash in August.
"The reason I filed it was that it appeared to me from the evidence, including sworn testimony and (financial) documents, that they have run out of money and have been continuing to lose money over time," said Robert Price, a staff attorney with the U.S. bankruptcy administrator's office in Greensboro. "They made money in June, but one month doesn't make for a whole year."
The company said its March Chapter 11 filing was partially driven by its recent efforts to focus on being an OEM manufacturer for hospitality furniture companies, which resulted in a high volume but low margin business.
Company officials last month said Linwood was still producing several furniture lines and that that a sale of its assets could be the best way to exit Chapter 11 and stay in business.
In its original Chapter 11 filing, the company listed about $3.7 million in assets and $6.9 million in debt.
Price said the company could present evidence at the hearing that could prevent the case moving into Chapter 7. But if Linwood continues to lose money, it could be hard to convince the judge to not approve the conversion, he added.
